Every company incorporated in India is required to specify its Authorized Share Capital at the time of incorporation. This is the maximum limit up to which a company can issue shares to its shareholders. If a company intends to issue more shares beyond the existing limit, it must first increase its Authorized Share Capital.
• Authorized Share Capital: The maximum amount of capital that a company is legally allowed to issue as per its Memorandum of Association (MoA).
• Subscribed Share Capital: The portion of authorized capital for which shares have been issued and subscribed by shareholders.
• Paid-up Share Capital: The actual amount received by the company from shareholders against the issued shares.
A company may require an increase in its authorized share capital for various reasons, including:
• Expansion of business operations
• Issuing new shares to investors
• Meeting regulatory requirements for funding
• Strengthening the company’s financial base
The procedure for increasing authorized share capital is governed by:
• Companies Act, 2013 (Section 61, 64)
• Companies (Share Capital and Debentures) Rules, 2014
• Articles of Association (AoA) of the company
• The company must ensure that its AoA allows an increase in authorized share capital.
• If the AoA does not have such a provision, it must be amended first by passing a Special Resolution.
• Issue a Board Meeting Notice at least 7 clear days in advance.
• Pass a Board Resolution to:
o Approve the increase in authorized share capital.
o Fix the date, time, and venue for holding an Extraordinary General Meeting (EGM).
o Authorize a director or company secretary to handle regulatory filings.
• Issue a Notice of EGM along with an Explanatory Statement under Section 102 of the Companies Act, 2013.
• Pass an Ordinary Resolution to approve the increase in authorized share capital.
• Prepare and maintain Minutes of the Meeting.
• File Form SH-7 within 30 days from the date of passing the resolution.
• Attachments for Form SH-7:
o Certified copy of the Ordinary Resolution.
o Updated Articles of Association (if amended).
o Payment of Stamp Duty as per the Indian Stamp Act.
• The Registrar of Companies (ROC) will review and approve the application.
• Upon approval, the Master Data of the company on the MCA portal will be updated to reflect the increased authorized share capital.
XYZ Pvt Ltd., incorporated with an authorized capital of INR 10 lakh, plans to raise additional funds from investors. The company follows the legal process, holds an EGM, passes the required resolutions, and files Form SH-7 with ROC. Post-approval, the company successfully increases its authorized capital to INR 50 lakh, enabling it to issue more shares.
• Timely Compliance: Form SH-7 must be filed within 30 days of passing the resolution.
• Stamp Duty Payment: The amount varies across states and must be calculated accordingly.
• Correct Documentation: Ensure all resolutions, notices, and minutes are properly documented.
Increasing the authorized share capital allows companies to expand their financial capacity and attract new investments. Proper adherence to the Companies Act, 2013, along with timely regulatory filings, ensures smooth implementation of this process.
For professional assistance, reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091 to ensure all statutory obligations are met on time.
